Advanced Auditing Issue - Case Study Analysis

Running head: ADVANCED AUDITING ISSUE
Advanced auditing issue
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1ADVANCED AUDITING ISSUE
Case study 8.2
Answer 3
Key business risks associated with the business of Travel X are as follows –
 Payment – agents make the payment directly to the airlines and wholesalers through
EFT (electronic fund transfer) for the purpose of travel arrangement. However, no
hard copy is retained by the company for the payments. Here the risk is that in case of
any technical issues the payment details may be lost. Further, if any error is found
related to payment it will be hard to recover.
 Receipts – receipt issued for all the monies received, however, the receipts are not
pre-numbered. Amounts received through checks are deposited in bank at the end of
each day. The risk associated here is that in case any receipt related issues it will not
be possible to find out the transaction to which the issue is actually related. The
reason behind this is that the receipts are not issued with pre-numbered receipts and is
deposited into the bank at the end of the day.
Answer 4
Accounts that will be affected due to above mentioned risks are as follows –
 Payment – account payable and bank accounts will be affected. If payment is
overstated the bank account will be understated and if the payment is understated the
bank account will be overstated. Key assertion involved with the payment related risk
is completeness. This assertion states that all the payment related transaction those
were supposed to be listed under the financial statement actually may not have been
listed.

2ADVANCED AUDITING ISSUE
 Receipts – accounts receivable account, bank accounts and cash accounts will be
affected. If receipt is overstated it will reduce the amount of receivable and at the
same time bank or cash account will be overstated. Conversely, if the receipt is
understated it will increase the amount of receivable and at the same time bank or
cash account will be understated. Key assertion involved with the payment related
risk is accuracy. This assertion states that receipt related transactions may not have
been accurately recorded at accurate amounts.
Answer 5
Apart from payments and receipts control risk another risk is that director B is in
entire control for financial aspects. However, Mr B only works once in a week that leaves
wide scope for financial misstatement and it will be difficult to identify the error or fraud, if
any.
Answer 6
Various accounts associated with the above mentioned risk is sales, expense, cash and
bank balances. Key assertion involved with these risks are – (i) completeness - all the related
transaction those were supposed to be listed under the financial statement actually may not
have been listed (ii) accuracy - all the related transactions may not have been accurately
recorded at accurate amounts.
Case study 8.5
Answer 1
Risks faced by the Electronic Enterprise Limited are as follows –
 Errors in classification of adjusting entries within the divisions mainly with regard to
daily sales data.